Comparison Between Parameters Affecting Private Limited, Public Limited & LLP Firms

legal complianceThis column is by Gaurav Bansal, Founder, Registrationwala

Selecting the type of business entity is a critical decision taken by entrepreneurs. Before starting their business journey, entrepreneurs need to take a decision upon which business structures will be best for them. The choice of the business entity has long term implications for throughout the business’ life-cycle. A well-informed decision can be taken only when one has complete knowledge about all the forms of business structures.

Following comparative study briefs about the difference between business structures that one should be aware of before opting for it:

Comparison Between Private Limited, Public Limited & LLP Firms

PARAMETERS PRIVATE COMPANY PUBLIC COMPANY LLP
Governing Law Companies Act, 2013 and various Rules made thereunder. Companies Act, 2013 and various Rules made thereunder. The Limited Liability Partnership Act, 2008 and various Rules made thereunder.
Difference in Nomenclature Name must contain Private Limited as suffix. Name must contain Public Limited as suffix. Name must contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Number of Members Minimum-2, Maximum-200 Minimum-7, Maximum-no limit Minimum-2, Maximum-no limit
Tax Liability Income of Company is Taxed at a Flat rate of 30% Plus cess as applicable. If dividends are distributed out of profit then again a tax called DDT (dividend distribution tax) is charged @ 7% appx. Income of Company is Taxed at a Flat rate of 30% Plus cess as applicable. If dividends are distributed out of profit then again a tax called DDT (dividend distribution tax) is charged @17% appx. Income of LLP is taxed at a Flat rate of 30% plus cess as applicable. Profits distributed to partners are tax free in the hands of the partners.
Statutory Meetings Every Private company need to conduct board and general meetings within the prescribed time as per Companies Act, 2013. Every Public company need to conduct board and general meetings within the prescribed time as per Companies Act, 2013. There is no such requirement in a Limited Liability Partnership.
Transfer of Shares Right to transfer the shares is a restricted right. Shares are freely transferable. Right to transfer the share is governed by the provisions of the LLP agreement.
Right to Vote/Voting Rights Voting rights are decided on the basis of the number of shares held by members. Voting rights are decided on the basis of the number of shares held by members. Voting rights are decided as per the terms of LLP Agreement.
Cost of Formation Cost of formation is quite higher. Cost of formation is quite higher. Cost of formation is lesser as compared to Company.
Charter Document Memorandum and Articles of association is the charter for the company that defines its scope of operations. Memorandum and Articles of association is the charter for the company that defines its scope of operations. LLP agreement governs the scope of operations of the LLP.
Audit of Accounts Every Private company is required to get their accounts audited annually as per the provisions of the Companies Act, 2013. Every Public company is required to get their accounts audited annually as per the provisions of the Companies Act, 2013. LLP is required to have its accounts audited only when its turnover or contribution in any financial year is equal to or exceeds Rs. 40 lacs or Rs. 25 lacs respectively.
Proof of Ownership In the case of a Private company the proof of ownership is share certificate. In the case of a Public company the proof of ownership is share certificate. LLP Agreement is the proof of ownership.
Annual Filing In case of Private Company, Annual financial statement and annual returns are required to be filed with the Registrar of Companies. In case of Public Company, Annual financial statement and annual returns are required to be filed with the Registrar of Companies. In the case of limited liability partnership, an annual statement of accounts and solvency and annual returns is required to be filed with the Registrar of Companies every year.
Statutory Records Private Company is required to maintain books of accounts, statutory registers, minutes etc. Public Company is required to maintain books of accounts, statutory registers, minutes etc. LLP is required to maintain only books of accounts.
Transferability of Interest Private Company members can freely transfer their interests. Public Company members can freely transfer their interests. LLP partner can transfer their interest subject to LLP agreement.
Dissolution Private Company can be dissolved Voluntary or by order of National Company Law Tribunal. Public Company can be dissolved Voluntary or by order of National Company Law Tribunal. LLP can be dissolved Voluntary or by order of National Company Law Tribunal.
Whistle Blowing No such provision is provided under the Companies Act, 2013. No such provision is provided under the Companies Act, 2013. Provision has been made to provide protection to employees & partners, providing useful information during an investigation or convicting any partner or firm.
Ownership of Assets Private company independent of the members has ownership of assets Public company independent of the members has ownership of assets The LLP independent of the partners has ownership of assets
Liability of Partners/Members Liability is limited to the amount required to be paid up on each share. Liability is limited to the amount required to be paid up on each share. Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.

About the Author:

Gaurav Bansal is the founder of Registrationwala, an online platform for all types of business registration and management services. A Commerce graduate from Delhi University and a Chartered Accountant by profession with experience of over five years in the field of corporate laws, taxation, business advisory services and FEMA matters.

Disclaimer: This column is powered by Registrationwala

Image Credit: Pulse Today

Similar Read:  IBM Global Entrepreneur Invites Startups for Smartcamp Challenge for DeepTech
Category